Accounts Receivable Insurance

What Does Accounts Receivable Insurance Mean?

Accounts receivable insurance is a type of commercial insurance that protects businesses in the event that customers fail to pay the sums owed. This may occur either because customers do not pay or because critical records within the company are damaged, making them unusable.

It is one of several specialized policies that appear on most lists of types of business insurance, and it tends to matter most for companies that sell on credit or carry large outstanding balances at any given time.

Insuranceopedia Explains Accounts Receivable Insurance

If a fire breaks out in a commercial property and destroys the accounting records, the company may lose track of critical business information. In such a case, it may be unable to bill customers, track who has or hasn’t paid, or determine the amounts owed. Accounts receivable insurance protects against this type of loss. Because the policy responds when physical records are destroyed, it often sits alongside commercial property insurance in a business owner’s portfolio, since both deal with what happens after a fire, flood, or similar event at the office.

Additionally, businesses can face substantial losses if key customers fail to pay or are late with payments. For example, an engine manufacturer selling several engines worth $20,000 each could face significant trouble if customers default or delay payments. Accounts receivable insurance would also protect against these types of losses. The coverage overlaps in some ways with commercial crime insurance, which handles losses caused by employee theft, forgery, and similar acts that can wipe out money owed to the business.